Answer the following questions and explain your answers where necessary.

A population is subject to two modes of decrement, or and . In the single decrement tables: 40-1 1 P60 for OSIS 40 40 and . P6 = 40-1 for OS/S 40 40 Calculate the value of (ag)co -(i) (a) Explain what is meant by the "expectations theory" explanation for the shape of the yield curve. (b) Explain how expectations theory can be modified by both "liquidity preference" and "market segmentation" theories. [6] (ii) Short-term, one-year annual effective interest rates are currently 10%; they are expected to be 9% in one year's time, 8% in two years' time, 7% in three years' time and to remain at that level thereafter indefinitely. (a) If bond yields over all terms to maturity are assumed only to reflect expectations of future short-term interest rates, calculate the gross redemption yields from 1-year, 3-year, 5-year and 10-year zero coupon bonds. (b) Draw a rough plot of the yield curve for zero coupon bonds using the data from part (ii)(a). (Graph paper is not required.) (c) Explain why the gross redemption yield curve for coupon paying bonds will slope down with a less steep gradient than the zero coupon bond yield curve. [8] [Total 14](a) Explain the terms "absolute and comparative advantage" in the context of international trade. (6 marks) (b) Discuss the possible gains that may be generated by international trade. (6 marks) (c) Explain the ways in which countries could place barriers against international trade. (6 marks) (Total: 20 marks)